Public Bill Committee

[Mr Graham Brady in the Chair]

Clause 4  - Credit information

Government amendment 1 agreed to.

Ian Murray: I beg to move amendment 43, in clause4,page5,line9,at end insert—
“(c) a duty on designated banks and designated credit reference agencies to provide information about the criteria used to calculate the credit score of a small and medium-sized business customer to such customers.”.

This amendment aims to establish a duty for banks and credit reference agencies to provide information about the criteria used to calculate the credit score of an SME customer to increase transparency and guidance for small firms to understand the calculation of their credit score and to help them to take steps to improve it.

Graham Brady: With this it will be convenient to discuss the following:
Amendment 44, in clause4,page5,line19,at end insert—
“(3A) The regulations must provide that the duty in subsection (1)(c) only applies where a small or medium-sized business makes a request to a designated credit reference agency or bank.”.

This amendment aims to establish a duty for banks and credit reference agencies to provide information about the criteria used to calculate the credit score of an SME customer to increase transparency and guidance for small firms to understand the calculation of their credit score and to help them to take steps to improve it.
Amendment 45, in clause4,page5,line28,at end insert—
“(ba) to which the duty in subsection (1)(c) applies.”.

This amendment aims to establish a duty for banks and credit reference agencies to provide information about the criteria used to calculate the credit score of an SME customer to increase transparency and guidance for small firms to understand the calculation of their credit score and to help them to take steps to improve it.
Amendment 46, in clause4,page6,line15,at end insert—
“(8A) For the purposes of this section, a designated bank or designated credit reference agency may only share information that has been specifically identified by the business to which the information relates.”.

This amendment is to ensure the security of the data being shared by banks and credit reference agencies.
Amendment 47, in clause4,page6,line33,at end insert—
“(11A) Before making regulations under subsection (1), the Secretary of State shall carry out an impact assessment which will examine—
(a) costs incurred by the bank, credit reference agency and business; and
(b) the impact that costs incurred will have on the final cost of borrowing for small and medium-sized enterprises.”.

This amendment aims to ensure that analysis is undertaken by the Government that looks at the impact of the costs of this process and procedure on both the sharing of information (the process) and the final cost of borrowing.
Amendment 42, in clause5,page6,line38,at end insert—
“(1A) In making provisions under subsection (1), the Secretary of State shall include a funding mechanism enabling the Financial Conduct Authority (FCA) to monitor and enforce compliance with the regulations.”.

This is a probing amendment to explore who bears the costs of the FCA process of enforcement and compliance.
Amendment 41, in clause5,page7,leave out lines 39 to 41 and insert—
“(8A) Credit information regulations shall provide a small or medium-sized business with the right to complain to the Financial Ombudsman seeking a determination requiring a designated credit reference agency to rectify, block, erase or destroy data held about the complainant.
(9A) Section 226A of the Financial Services and Markets Act 2000 is amended as follows. After subsection (f) insert—
“(g) the complaint is one falling under section 5(8A) of the Small Business, Enterprise and Employment Act 2014.””.

Ian Murray: The amendments pertain to clauses 4 and 5. At the start, let me help the Minister. Before we broke for lunch we had a lively session about lending to small businesses, which left me a little confused, so I went back to my office with my sandwich in my hand wondering what is happening to small business lending. I remind the Committee that we were told this morning that there has been a recovery in the rate of change—I am not sure whether that meant lending to small businesses is going up or down. Then we were told that it was at a low level but now it is almost flat. I am not sure what “almost flat” means—[ Interruption. ] My hon. Friend the Member for Hartlepool, the former Minister, says it is my jokes that are almost flat. That may be one definition. However, in terms of lending to small businesses, let me help the Committee and the Minister by giving some figures.
The second quarter figures for net lending were announced at the start of September. In that quarter alone, net lending to small businesses dropped by £435 million, which is relevant to the amendments because they and clauses 4 and 5 are about encouraging lending to small businesses and making it easier. It needs to be done pretty quickly, because lending to small businesses is down by about £4 billion since 2010.

Toby Perkins: I appreciate what my hon. Friend is saying. Is he as stunned as me that in 2010 there was an access-to-finance crisis for small businesses, but in every year since the position has worsened? After all the measures the Government put in place, we are in a worse position now than we were in 2010 when we thought we had an access-to-finance crisis.

Ian Murray: My hon. Friend is right. Not only were we in a better position in 2010, but the economy was growing and unemployment was falling. The consequence of three years of Government inaction is that small businesses, which are the lifeblood of our economy, are still struggling along. I want to know whether the Government’s definition of “almost flat” is a drop of £435 million. If that is almost flat, we must ask what bumpy would be like.

Matthew Hancock: This discussion will benefit from some facts. The banks lent nearly £30 billion to small and medium-sized enterprises in the seven-month period to the end of July—up 23% on the equivalent period last year—and over the past three months average net lending has been positive. That does not take away from the fact that there is much more to do to recover from the banking crash, which, of course, happened in 2008.

Ian Murray: I did not detect a question there, but the figures the Minister has provided to the Committee suggest that there has been a massive recovery in the rate of change and that sounds almost flat, in terms of small business lending. I am grateful to the Minister for giving the Committee that information. We can now truly believe that there has been a recovery in the rate of change.
Figures from the Treasury and the Office for National Statistics are still showing that net lending for small businesses is going down. Although we also appreciate every pound that goes from the banks to small businesses is a pound more than they had before, it seems to me that there is still a significant problem. That is why I think—I give credit to the Minister—that clause 4 is so important.

Bill Esterson: The figures tell part of the story, but what is happening on the ground is what really matters. The 40% of people in employment in my constituency who work for or run a small business will say that they have not seen one penny more lent to them by the banks in recent years. That is the reality on the ground and we need concerted action now. Does my hon. Friend agree that that is the key point?

Ian Murray: My hon. Friend is correct. He highlights the key issues in lending to small businesses. I was a small business owner, despite the Government’s perception that no one in the Opposition has experience of business. Everyone on the shadow Front Bench has experience. My hon. Friend the Member for Hartlepool was a distinguished accountant in a previous life. Using the words “distinguished” and “accountant” in the same sentence should be encouraged. On that point, I have been remiss in not referring the Committee to the Register of Members’ Financial Interests. I have three unremunerated directorships that are slightly impacted by provisions in the Bill.
I was talking about access to finance. Owners of small businesses tell me that the big problems are not just access to finance but the cost of finance and late payment, as we discussed this morning. The Bill offers a real opportunity to deal with two of probably the three or four biggest issues that small businesses bring to us. In the spirit of the amendments we are trying to be helpful to the Government, so as not to waste the opportunity of a small business Bill to do something serious about that. We wasted the opportunity on late payments this morning. As far as I could read it, the Government agreed with our amendments and then voted against them. It will be interesting to see whether the Government bring anything on Report to strengthen the Bill on those issues.
We agree with the Government in bringing forward these proposals to make it easier for companies to gain access to credit. We are trying to demonstrate that it is not just about access to credit but all the infrastructure behind it. There is a significant lack of information. In evidence the Forum of Private Business said that there is a massive lack of information at small business level about new lending opportunities. That fact and the cross-fertilisation of funding to small businesses have resulted in 80% of term lending to SMEs coming from the incumbent bank, which would tend to be one of the top high street banks to which we would all go to access funding.
When I set up my business, I would sit with my business plan and look at the required funding. The first thing would be to approach the bank with which there was a personal relationship, which in the main would a high street one, and then perhaps look at some of the others. It seems that the contraction in the economy following the problems around the worldwide financial crash in 2008 has meant that most of the risk analysis and matrix of major banks are much stricter than they were. On the one hand, that might be a good thing but it makes it difficult for small businesses to get access.

Iain Wright: My hon. Friend talked eloquently about his experience in trying to access finance and having the relevant information. Does he think one of the problems, as businesses tell me, is that they will not apply for finance from banks or other institutions because they are concerned that they will say no? Is there anything in clause 4 and the information relating to finance that would address that, to ensure that the process is working for productive small businesses in our country?

Ian Murray: I am grateful for that question. A key issue in getting access to funding is giving small businesses the confidence to ask in the first place. The reasons why they do not try to get access to funding are, first, that they fear they will be turned down—that is probably the major cause—and, secondly, they do not know what rate will be charged on the funding. The rate on borrowing for small business and consumers has increased because the banks have been building up their capital reserves to satisfy the capital criteria. That may be a good or a bad thing, but while our interest rates are being kept historically low to help the economy recover from the deep economic crisis, borrowing is expensive and small businesses in particular are finding it difficult to access.
We want more information to be passed not only between banks and lenders but to credit reference agencies, so access to finance is a lot easier for businesses that are rejected. Before we broke for lunch, we examined some of these issues, and I was grateful for the Minister’s answers. As my hon. Friend pointed out in his intervention, we are concerned about the consequences for businesses that are turned down for finance. If a business has gone through the process of producing its cash-flow analysis and business plan, approaching the first lender and the business managers, and going through the layers of credit control, perhaps up to the credit committee, what is the consequence if the financing does not go through?
There is a matrix of financing at banks; they do not provide only term loans and overdrafts. The business manager in a high street bank can passport a business to a number of areas of finance, depending on what it is trying to do. Banks always champion their ability to find the best product for a business. If a small business gets to the end of that process but receives a letter or phone call to say no, what consequences does that have?
I appreciate that clause 4 is about trying to open up a new door to accessing finance, and none of us disputes that we should be looking at that, but what happens when somebody goes through that door? Will alternative lenders charge them more? Will it hit the confidence of the small business? I believe that my hon. Friend is right about businesses being confident that they will not be turned down for finance. Will the high street banks—the major players in the financial markets—start disassociating themselves from some sectors? They have done so already: it is difficult for property companies, particularly small and medium-sized companies, and the hospitality sector to access finance. Many of the sectors that have been hit the hardest by the reduction in consumer spending following the economic crisis are finding it more difficult than other sectors to access finance. Will banks automatically change their risk profiles to say no to some sectors if they know that the responsibility for them finding finance is through a different door? I know I am talking about extremes, but the proposal may have unintended consequences on where banks post finance to.
If I run a crowdfunding company, a challenger bank, an angel company, a venture capital company or any of the other potential sources of finance, and somebody comes through the door who has been rejected by a high street bank—they have obviously been rejected for a reason, because high street banks will, in the main, want the business if somebody has a viable proposition—do I automatically stick a few percentage points on my interest rates? That will make finance more expensive, which perpetuates the problem of small businesses not being able to access funding in the first place, because one of the biggest impediments is the cost of funding.
I do not disagree with the clause. In spirit, it is exactly what we should be doing, but I worry that it might perpetuate the two problems: businesses’ confidence that they will not be told no, and the cost of finance, which is more expensive than it was in the days before the economic downturn. I hope the Minister will address those questions in his response. Perhaps he can examine them in a bit more detail. That is the thrust behind amendment 43.
We are trying to introduce a duty for the banks and the credit reference agencies to provide information about the criteria they have used to calculate the credit score of a small business customer. That will increase transparency, so that where we may be seeing disinvestment in various sectors by high street banks or some of the more traditional lenders, we will be able to see that, actually, a small business’s credit scoring would have meant that it was granted that particular product. If there is information about how that credit score has been calculated, we would be able to see if that particular customer should have been funded in more traditional ways, giving that business the confidence to borrow on the terms it would get from a traditional lender.
It is important that small firms have guidance to understand the calculation of their credit score and to help them take steps to improve it. That kind of information is great for small businesses. One of the best ways to improve their rating would, of course, be payments. Their cash flow might be looking better in terms of late payments, or they might need additional support through their business manager. If it is a seasonal business, it could be doing other things in quieter parts of the year, or the management might just need a little bit of extra confidence. Being able to see that information would be much appreciated.

Toby Perkins: My hon. Friend is absolutely right. Transparency and support will help more small businesses to have confidence in what they are letting themselves in for and take the plunge to borrow and invest. I absolutely support what he proposes.

Ian Murray: I am delighted that my hon. Friend supports my proposal, because his name is on the amendment. It would be strange if, after I have tried to persuade the Government, I started losing Members on my own side. That would certainly be unique to a Committee in the House. He is absolutely right to highlight that that is a critical point.
The comprehensive information that can come from a rejected business should be passed on—with the business’s consent—to other lenders. We think that the Government may have missed a critical piece of this jigsaw puzzle, and that is why we are looking to promote these businesses. I can only reflect on my own experience, but there is often no logical explanation for a small business being refused finance. If there is an explanation, it might be, “Sorry, I fully support your business plan and fully agree with your cash-flow analysis but the credit committee has refused it. We don’t have a reason for that.” Passing the buck may be too strong a term, but we often hear small businesses saying that they had no comprehension of why they were turned down. If they had been given a specification of why they were turned down, they may have been able to correct that by going back to the credit committee for a second bite at that funding cherry.
Businesses themselves are often not clear why they are refused credit from the lender. It is critical to have transparency between the lender and the credit reference agency, to identify why the business was turned down and even to identify steps to improve their credit score. The best way to get cheaper funding is to have a good credit score. We all know what happens when we do not pay our household bills, when we forget to pay our mobile phone bill or when our direct debit inadvertently bounces. All those household issues directly affect our credit score. With some credit reference agencies, we have to dig to find out why that is the case before we can challenge it. If consumers can do that, small businesses should be able to. That is what amendment 43 is trying to achieve. It is supported by the Federation of Small Businesses—I thought its representatives were superb when they spoke to us last Tuesday. They were supportive of the Bill, but also of pushing it that little bit further, to try to promote some of the federation’s issues. The federation has said:
“This would increase transparency and guidance to help small firms to understand their credit score and help them take steps to improve it.”
Looking at the lending figures, we have heard that there is a recovery in the rate of change. We have heard, too, that we are almost flat. Perhaps looking at some of these issues will enable it to be not just almost flat, but completely flat, and then to head on an upward trajectory towards more business lending. That is what we want.
I hope the Minister will look closely at the amendment and be able to support it. He himself has said the Government
“will strain every muscle to support”
small businesses.

Iain Wright: My hon. Friend has almost convinced me on amendment 43, which stands in my name as well. Should the information that banks and designated credit reference agencies provide also include the strategic direction of that bank or agency? He mentioned the hospitality industry. If a particular bank took the strategic decision to pull out of the hospitality industry, that would be no reflection on the plausibility and acceptability of a particular fund application. Should such information also be included under the amendment?

Ian Murray: That is an incredibly valuable point. If a response came from the credit committee at a traditional lender that said, “Yes, your business plan and cash flows are acceptable; we believe the projections in your cash flows, you have a good, sound business and under normal terms you satisfy all the criteria for lending, but the overall strategy of this bank is to disinvest from your sector,” a business might think that a bitter pill to swallow, but it would at least be an honest assessment of where that business was.
The business could then stop worrying that it had been turned down on the basis that its cash flows were incorrect, or because it was overexposing itself to considerable debt or the cost profile of that debt was inappropriate. That business could say, “I give you permission to give my details, through a credit reference agency, to other lenders, on the basis that I have not really been turned down. This was not really a no; under normal circumstances it would have been a yes, but you are no longer funding this industry because we are overexposed in it.” That could be, for example, the property or the hospitality industry.
Banks have said openly that they are trying to disinvest from property portfolios and so on. What my hon. Friend proposes would give businesses the opportunity to say, “I have not been turned down. I have the confidence to go and borrow the money, which I hope will not cost me any more, because the underlying aspects of my business have not affected my being turned down. The business is sound.”
Before my hon. Friend intervened, I was talking about the Minister’s muscles. He almost pulled a muscle trying to get here on time this morning; indeed, had I not been the comrade that I am, when he was heading up the escalator and I was heading down, and he said, “It’s the Boothroyd Room, isn’t it?” I would have said, “Yes.” I was tempted, but instead I said, “No, it’s Committee Room 10,” and he hotfooted it here, getting here just in time to reject our amendments to clauses 1 to 3, although he agreed with them. He has said that the Government will “strain every muscle” to support small business. I hope he strains one this afternoon, looks at our amendments in the spirit in which they have been drafted and agrees to them. Perhaps he will do that and vote against them anyway, as he did previously.
Amendment 43 would achieve transparency on credit scores. I wonder whether any member of the Committee knows their personal credit score. If people do not know their personal credit score, how will small businesses know what their credit scores are or the support they can get to improve them?

Iain Wright: What’s yours?

Ian Murray: I have to admit that I do not know what my credit score is. I do not know whether other Members have looked at the Equifax website or websites of other credit reference agencies. The Minister is shaking his head furiously—perhaps he will tell us what his is.

Iain Wright: He has spent too much money on jumpers.

Ian Murray: He certainly has.

Stephen Doughty: I have, indeed, looked at my credit score. The important thing about these websites where we can get that information is that they empower the individual. They allow us, for example, to make a correction if there is inaccurate data on there. Many of my friends, including my brother, have had to correct inaccurate references from credit rating agencies. Does my hon. Friend agree that businesses must have that transparency of information to be able to have as informed a relationship with their bank as possible?

Ian Murray: Absolutely, and what is good enough for the consumer is good enough for the small business. There was a major debate in another place this week on the Consumer Rights Bill, looking at whether small and micro-businesses are, indeed, consumers as much as the rest of us are and allowing people to access that part of the system so that they can improve their credit score.
Amendment 44 is consequential to clause 4 (4)(a) and (b) in terms of permission to make a request. The power has to be in the hands of the business to allow these things to happen. There is also a duty, and amendment 45 is also consequential, for the banks and credit agencies to get involved in this process if the small business gives permission. I hope that the Minister will look favourably on this. Amendment 46 recognises that there are concerns about data, particularly small business data, and that those data have to be protected. The credit reference agencies and banks are covered by the Data Protection Act 1998, but we need to make sure that any data sharing by the banks and the credit reference agencies with regards to this process is done with the full support and permission of the small business itself, whether or not a form is signed. That is the Government’s intention because it is part of the other two issues.
Amendment 47 aims to ensure that the Government analyse the impact of the costs of this process and procedure on both the sharing of information—which is the process—and the final cost of borrowing. The reason why I have tabled that amendment is that, in the impact assessment, the Government have not been clear what the financial implications of these regulations will be on the designated banks and credit reference agencies and, most importantly, the small businesses themselves. This does not appear to me to be a cost-free exercise. Is it really in a designated bank’s interest to take a lot of time with the credit reference agencies to process some of the data?
Can the Minister say how many businesses may use this process? Will it be incredibly popular, running into the thousands or tens of thousands? Is there any analysis of how many businesses are turned down for finance, given that the recovery and the rate of change is so high? Perhaps more businesses are getting more funding and will therefore use this less, but it is important, if a huge number of businesses are accessing this process, to know where the burden of that cost lies. We therefore ask the Government to undertake an analysis on the impact of these regulations. It is fair that banks, credit reference agencies and businesses are aware of the cost burden required to provide this information and to ensure that the information provided is relevant and useful.
If we have a system whereby the small business has gone through an entire process of lending for that bank and the bank has come back with a refusal, there is already a business impact for that bank, because it has decided that it does not want the business. They have lost a customer. The onus is then put on that bank, through the credit reference agency, to get permission from the small business to share the data, and then there has to be a process for that data to be shared, so a cost is inevitably involved. Will the Minister say where that cost will lie?
The Minister is in a generous mood, so he might accept amendment 47, but if he does not, will he come back either in Committee or on Report with the analysis confirming the cost and where the cost burden lies? Is there an argument to suggest that the system may not work properly if the cost burden lies disproportionately on small businesses? A small business could say, “I’ve gone through this entire process, and the management time has been x and the process of trying to raise the additional capital has been y.” Such a business would therefore be paying an additional fee only perhaps to be turned down again by an alternative lender. There is no guarantee that a business that decides to go down the route of having its information shared with alternative lenders will actually get that funding, so it is another direct or indirect cost either to the business or to management time. Will the Minister come back with an analysis, if required?
Amendment 42 probes the Bill’s enabling provisions in relation to the Financial Conduct Authority. I understand that the Secretary of State can use the FCA if he wishes, but that is another layer of regulation. The Government are keen on cutting regulation, but the potential consequence of this regulation is further monitoring by the FCA, which has a cost. Again, we do not want the cost to be a disproportionate burden on small businesses, because, to go back round the circle, if the cost is disproportionately borne by small businesses, their borrowing and the risk of their entering the system become more expensive, which would self-perpetuate the issue about the cost of lending to small and medium-sized firms. The smallest firms will be hit the hardest, which tends to be the case with Government policy.
The smallest businesses will be disproportionately affected by the Bill, so what consideration has the Minister given to funding compliance and enforcement in relation to clause 4? Specifically, have the Government considered placing a levy on the designated credit reference agencies or designated banks to pay for the FCA? It makes sense to do that whether or not anyone uses it. If I was looking at the underlying costs of a designated bank and I had just turned down someone for funding—perhaps for no reason other than that I had disinvested from a particular sector—adding more costs means that I might lend less, which could be an unintended cost. It would therefore be good if the Minister guaranteed that no further costs of enforcing the Bill’s provisions should be borne by small and medium-sized businesses, assuming that the Secretary of State enables the FCA to get involved in that process.
On amendment 41, businesses need to know that they can seek redress should they fall foul of the credit record system. My hon. Friend the Member for Cardiff South and Penarth, the Opposition Whip, has already said that consumers can check their credit reference. They can dig deep to where any problem may lie, and they may be able to rectify those problems, whether through a credit reference agency or a company that has posted to a credit reference agency any problems that it may have had, so businesses should be able to seek redress if they fall foul of the credit record system.
The Minister has not made it clear whether businesses will be able to do that under the Bill. Clause 5(4) states only:
“Credit information regulations may make provision that enables complaints about the activities of designated credit reference agencies to be dealt with under…the Financial Services and Markets Act 2000.”
The Bill uses the word “may”, on which we have had major debates in Committees over many hours. The Under-Secretary has talked about whether a “may” should be a “should,” and whether a “should” should be a “will.” We should not go down that route again, but the overall thrust is the same: the text says “may”, but it also talks about the “activities” of the designated credit reference agencies.
The subsection does not provide a recourse that allows businesses to resolve any issue they may have with the underlying content at the credit reference agency. It would therefore be useful for the Government to provide a redress mechanism for businesses that want to rectify their credit history. There must be a right-of-complaint mechanism for small businesses that want to rectify a problem, block an entry or erase data held about a firm’s credit record by the credit reference agency if it is harming their ability to access finance.
Complaints will be determined by the Financial Ombudsman but only for a very small number of businesses, because their annual turnover must be less than £1.5 million and they must have fewer than 10 employees. Quite a small number of businesses will therefore be affected. We suggest that the Financial Ombudsman should be able to deal with a much larger proportion of complaints from small businesses and have the power to instruct a designated credit reference agency to amend a small business’s credit rating. The British Chambers of Commerce has been clear in its support for the Financial Ombudsman handling such disputes with designated credit reference agencies.
This all comes down to fairness in how we deal with small businesses and their livelihoods. When a small business is applying for funding, there tends to be some kind of personal skin in the game. It could be a family home, savings or a proportion of the business. The small business owner could have all those things on the line. Where that is the case, we are trying to ensure that they can resolve some of these issues with the credit reference agencies. That would stop designated banks hiding behind the credit reference agency and make it more transparent.
These important amendments complement what the Government are trying to do, while trying to make lending to small businesses slightly better than it has been under this Government. This is about fairness and transparency. We are genuinely—in the spirit of the legislation, and with the support of the British Chambers of Commerce and the Federation of Small Businesses—trying to improve the Bill and ensure that small businesses get the lending they deserve.

Matthew Hancock: I am grateful for the opportunity to discuss the amendments and to probe clause 4, of which I am a strong supporter, in more detail. I acknowledge and support the tone in which the amendments were drafted. They are intended to probe to try to strengthen a clause that has support from across the Committee. It is not worth reiterating the history of the crash, why we are here and whose fault it was; we all know that. I will go through each amendment in turn and build on the arguments made. In many cases, the spirit in which the arguments were made is the one that we are also engaged in. In some cases, I can give clear assurances that the issues have already been taken care of.
Amendments 43 to 45 are designed to require designated banks and CRAs to provide information about the criteria used to calculate credit scores. I agree that it is vital for businesses to have the information they need to maximise their chances of securing finance in the future. However, we want to do this in an effective way that does not put undue burdens on business. The best way to do that is improving transparency in the system and banking sector, and educating businesses to help them understand the impact of their behaviour on their credit score. My hon. Friend the Member for Wyre Forest mentioned a credit score guide for SMEs produced by Russel Griggs, the independent reviewer of SME lending and the appeals process.
The extra transparency and the SME lending appeals process have had a positive impact. It has also brought to light the way in which credit scores are structured and made that more transparent so that businesses know how their credit score will be affected. That wider education is valuable in trying to ensure that we increase the options for accessing finance.
At this point, it might be worth dealing with the question of whether someone who had been rejected by their primary bank would find that the cost of lending through the process would be higher. There are two responses to that. First, without this process, many of them would not be able to get a second chance from an alternative lending provider, because, while that would have been hard, this process means that, should the business want it, going to an alternative provider will be automatic. Secondly, in the future, just as they do now, credit rating agencies will have many customers who will come to them without having been rejected by a primary bank and the alternative credit providers will not be able to see the difference between businesses that approached their primary bank but got rejected and put on the credit reference system and those that went directly to an agency.
That level playing field is important to remove the danger that other lending providers would perceive a rejection from the initial bank as an indication of the appropriateness of finance. That is one of the reasons why we decided to propose a system that works through credit reference agencies, rather than through direct referencing from a bank that had rejected to other banks. That intermediary helps to remove any potential stigma from the system. The hon. Member for Edinburgh South made an important point and I hope that the design of the structure, with that intermediary, helps to alleviate his concern.

Ian Murray: I am grateful to the Minister for that indication. Will the wall that will essentially be put between the people who go straight to an alternative lender and those who come through the system mean that the new lender who receives the information will not know where the people have come from? That would seem to be a way to determine the cost of lending. Is it not the case, however, that someone who has been turned down for lending will have a mark on their credit record and that, therefore, it would be straightforward to find out where they have come from?

Matthew Hancock: Not necessarily. Crucially, different actions can be undertaken to ensure that one’s credit reference is strong and appropriate. We had a discussion of some such actions that can be taken in the personal space, but small businesses have the capacity to do that as well. I accept the spirit of the amendment, but such concerns are best dealt with through transparency and strengthening the responses of the credit reference agencies to their customers, rather than by primary legislation.
Amendment 46 would restrict the information that can be shared under the regulations to that specifically identified by the business. I strongly agree with that and that, indeed, is the policy intention. The Data Protection Act 1998 is an important arbiter and defender of data privacy. It is long entrenched and widely supported for striking the appropriate balance for data protection between transparency and personal data. It is an important safeguard.
The clause requires that businesses must agree to have data provided to CRAs and our intention is that that agreement will be given on signing terms and conditions for the financial products. I hope that that takes care of the Opposition’s concern.

Ian Murray: I appreciate what the Minister says. The Data Protection Act is there to protect that kind of data, but does the Bill allow for a small business to seek redress if it felt that there was a data breach, or does it essentially rely on the Data Protection Act to deal with those problems?

Matthew Hancock: The Data Protection Act already provides the ability to seek redress when data are misused; the Bill aligns with the Act on that.
Amendment 47 would ensure that the Government analyse costs. Of course, the costs to business of any action is very important to us; indeed, this is set to be the first Parliament in modern history that has reduced the burden of domestic regulation. Conservative Members are incredibly proud of that, not least because regulation affects small business disproportionately, as was the point made by the Opposition.
The hon. Gentleman asked about the effect on costs. The impact assessment sets out the effect of the changes. He says that it is not a cost-free exercise; indeed, we conclude that the banks will incur up-front IT costs of around £10.5 million, and similarly credit reference agencies will incur costs of £3.5 million. However, any ongoing costs of sharing data will be negligible for established lenders.
We must come back to the broader point about costs, not least because of the impact of these measures on the cost of finance. The indirect effects on costs are important, and we think that they will be downwards, not upwards, on both the prices charged for credit scores and the cost of lending, because they strengthen the competition in the market. I hope that the combination of the impact assessment and the fact that things will move in the right direction will reassure the hon. Gentleman that the costs have been taken into account.
Others—for example, the Bank of England—have discussed using transparency to build further tools to strengthen the availability of credit information. That is exactly the sort of thing that one hopes will happen when information is made public in a big way. Some such things can be foreseen, but some cannot, so it is not easy to put a specific figure on the wider benefits, which is why the impact assessment concentrates on the costs that are direct and relatively easy to quantify.
Amendment 42 explores how the FCA’s monitoring and enforcement will be funded. The hon. Gentleman said that the Opposition do not want costs on small business, and nor do I. I am straining every sinew and exercising every muscle in order to support businesses. The intention is that the FCA’s costs will be met by fees paid by those monitored, in the same way as the FCA’s other monitoring and enforcement work; in short, the costs will be met largely by the big balance sheet banks. I agree with the thrust of the hon. Gentleman’s argument, but amendment 42 is not necessary to make it happen.
Amendment 41 seeks to give a business the right to complain to the Financial Ombudsman Service to seek to rectify, block, erase or destroy data on that business that is held by a CRA. Again, we do not think it is necessary to extend the remit of the FOS through primary legislation. Complaints by micro-businesses are currently covered. The FOS has wide discretion to make the decision that it considers appropriate in each case. As drafted, the amendment would restrict its options, and we do not want to fetter the FOS’s discretion. Nevertheless, I take the spirit of the amendment, but it is important that the FOS can already exercise that discretion.
The hon. Gentleman asked about the number of companies that might be involved. The latest SME finance monitoring report from August says that 66% of all applications for loans and overdrafts were successful. Within that proportion, 96% of businesses seeking a renewal of existing facilities were successful, although only 34% of first-time applicants were successful. That is the proportion that we are trying to boost.
Returning to our debate about the scale of lending—the upward trend in the rate of change of net lending—it has over the past three months, as I mentioned, marched into positive territory, but of course we want to keep it moving in the right direction. The fact that gross lending has increased by almost a quarter, while repayments have also increased, shows that access to finance is slowly improving, but there is an awful long way to go.

Ian Murray: The Minister said previously that the indication from the small business would be on the lending form to allow data to be shared if the application were turned down. He said subsequently that approximately 34% of people who apply for lending, particularly for the first time, are turned down. That 34% means nothing unless we know what the quantum is. Will he give us a figure to show how many businesses that would entail and provide an analysis of how many of the 34%—how long is a piece of string?—would be likely to get funding if they moved into an alternative funding source?

Matthew Hancock: That is an important question and I will answer it, but first I shall pick up on a point that the hon. Gentleman made in his speech. He said that only a small number of companies employ fewer than 10 people, but in fact most companies employ fewer than 10. Even though half of people are employed by SMEs, the quantum of firms is much bigger, for obvious, basic mathematical reasons.
The figure showing what the 96% and 34% turn into is not precisely available, because the measurement of lending is in pounds and these percentages are based on a survey, rather than on an analysis of the absolute figures. I cannot give him the figure, because it is measured is in terms of quantum of money rather than the number of companies that are accessed. None the less, the number of companies with fewer than 10 employees is, of course, measured and published.
There is genuine consensus in this area on the direction of travel. In respect of many of the probing amendments, I hope that I have given specific reassurances that the concerns will be taken into account.

Iain Wright: Does the Minister have any empirical evidence along the lines of companies going to banks to consider a funding application and banks almost informally saying, “I wouldn’t apply if I were you”? That would distort the figures as well. Has he anything within the Department about that?

Matthew Hancock: We have anecdotal evidence about the number of companies that are put off lending in advance and do not bother to apply because they think they will get a no. Again, that number is published in the Department’s figures. I hope that the measure will start to tackle that. People should know that, when they approach their bank, they are not only asking for that bank to have a look at their business plan and application, but are essentially putting their business plan at the top of a process that could then cascade down through different options. I hope that the measure will remove the incidence of people not applying for credit in anticipation of failing and, therefore, address the problem that the hon. Gentleman mentioned.
I hope that the hon. Gentleman has found my explanations reassuring and will, on that basis, agree to withdraw the amendment.

Ian Murray: I am grateful to the Minister. Again, he saidthat he agreed with the spirit of the amendments and just disagreed with the content and would if we pushed any to a vote, want to vote against them. So he is probably opposing rather than supporting them.
I shall return to where I began this afternoon, or even to where we ended before lunch, with questions from Opposition members. We were told that there was a recovery in net lending shown in the rate of change and then told that the trajectory was almost flat, and now we are told that we are in positive territory. We have three different answers to that question. It would be good just to have a figure for what net lending was in the previous quarter or the quarter before. We are being told that net lending to small business is down quite substantially. If positive territory is almost flat, I am not quite sure how we measure what positive territory is or what almost flat is. Maybe it is almost flat on the upside, rather than almost flat on the downside.
I fully appreciate that most of the amendments have been probing amendments to try to find out how the process would work and to get the Minister to think through the consequences of small businesses looking at it, but I am disappointed that he has not accepted amendment 43 because it was a genuine attempt to use the provisions of the Bill to allow credit reference agencies and small businesses to see their credit score and understand how it has been calculated. It seems that a key to unlocking the uncertainty around finance would be to allow small businesses the ability to see why they have been turned down for particular lending and what that credit scoring looks like. Indeed, that was asked for by the Federation of Small Businesses in its written evidence. It said:
“We would also like to see a duty included in the Bill which requires banks and credit reference agencies to provide information about the criteria used to calculate the credit score of the small and medium sized business customer. This would increase transparency and guidance to help small firms to understand their credit score and help them take steps to improve it. The customer would request this information in writing and no charge would be made for providing it.”
All the information is there so I am disappointed that the Minister will not support amendment 43; it is supported by the FSB. Reading the FSB’s submission and given the reason we have tabled the amendment, it seems eminently sensible that a small business should be able to access that information. If we are trying to make it easier for small businesses to access funding, we need to ensure that if they are turned down, they know why, what their credit score looks like and how to rectify it. They should be given advice on how to make their application in the future, whether it is for that particular designated bank or lender or, indeed, an alternative lender. That would make it easier. Indeed, the Institute of Directors said:
“Where more data is accessible and more widely shared by banks, a significant barrier will be removed for new lenders and alternative finance providers. However, it will be important that this is properly monitored to ensure lenders are indeed a) providing businesses with alternative financing options, should a small business be rejected for a loan and b) sharing data more widely.”
The monitoring process is about ensuring that small businesses are able to access information. If the small business has the data in its own hands, we do not need any monitoring process, which the Institute of Directors has quite rightly and sensibly asked for. The small business itself is able to monitor, because it is able to see why it has been turned down. My hon. Friend the Member for Hartlepool raised that issue in an intervention and it is important to have the customer fully in charge of their own data to be able to make decisions that they may need to about lending. I will press amendment 43 to a vote to test the will of the Committee. Amendments 44 and 45 are consequential; I will only press them to a vote in the event that we are successful in the vote on amendment 43.

Iain Wright: When.

Ian Murray: Yes, when we are successful. We are back to the may, should, will or but terminology. We understand and accept the Minister’s explanation on some other amendments but I would like to reflect briefly on amendment 41, which is the last amendment in the group and promotes the terms of the Financial Ombudsman Service. There has to be a mechanism to allow small businesses to seek redress. It seems that the Financial Ombudsman Service is the best place for that to happen and to be set out. Although I will not press all the other amendments, I would like to test the Committee on amendments 43 and 41.

Question put,That the amendment be made.

The Committee divided: Ayes 6, Noes 11.

Question accordingly negatived.

Amendments made: 2, in clause4,page5,line43,leave out
“before a bank or credit reference agency may”
and insert
“for a bank or credit reference agency to”

This amendment ensures that regulations made under clause 4 may provide for conditions relevant to the continued designation of a bank or credit reference agency, as well as conditions relevant to the initial designation of a bank or credit reference agency.
Amendment 3, in clause4,page6,line7,leave out subsections (8) to (12)

The omitted provisions are being moved to the new clause inserted by amendment NC2 as they are common to both clause 4 and the new clause inserted by amendment NC1.—(Matthew Hancock.)

Question proposed, That the clause, as amended, stand part of the Bill.

Matthew Hancock: Clause 4 gives the Treasury the power to make regulations to require banks to share data on their small and medium-sized business customers with credit reference agencies, and to require them to ensure equal access to that data for the lenders. We have already had a broad and broadly supportive debate on the clause. Following that debate and the discussion on the amendments, and including the amendments that have gone through, I think that it has been a positive debate about how we can open up data on small and medium-sized businesses and, over time, help to reduce the market concentration levels that we see in banking today and provide new sources of finance to the UK’s small and medium-sized businesses.
Challenger banks and alternative finance providers do not have access to the same level of information as the bank with which the business already has a relationship. This is an information asymmetry and the clause gives the Government the power to designate the banks that will be required to share the data. The clause requires the regulations to set out conditions that will need to be met in order for the obligations on banks and CRAs to take effect. Such conditions include requiring the business to give its permission and also that the data should only be released by a CRA on the lender’s request.
The clause also enables the obligation on the CRAs to provide equal access to the data, to apply only when other conditions are met, such as the lender complying with the terms and conditions, and agreeing to provide information to its small and medium-sized business customers subject to the agreement of those customers.
Finally, the clause gives the definition of a small and medium-sized business that will be used for the purposes of the requirements. We are committed to fostering a competitive banking sector to support the economy, and I therefore beg to move that clause 4 stand part of the Bill.

Question put and agreed to.

Clause 4, as amended, accordingly ordered to stand part of the Bill.

Clause 5  - Section 4:supplementary provision

Amendments made: 4, in clause5,page6,line36,leave out “Credit information regulations” and insert
“Regulations under sections 4 and (Small and medium sized businesses: information to finance platforms)”

This amendment means that the Financial Conduct Authority can regulate the activities under the new clause inserted by amendment NC1 in the same way as it will be able to regulate activities under clause 4.
Amendment 5, in clause5,page7,line8,leave out “Credit information regulations” and insert
“Regulations under sections 4 and (Small and medium sized businesses: information to finance platforms)”

This amendment and amendment 6 mean that the Financial Ombudsman Service could have oversight of activities under the new clause inserted by amendment NC1 in the same way as it can have oversight of the activities under clause 4.
Amendment 6, in clause5,page7,line9,after “agencies” insert “or designated finance platforms”

See explanatory statement to amendment 5.
Amendment 7, in clause5,page7,line19,leave out “Credit information regulations” and insert “Regulations under section 4”

This amendment, and amendments 10, 11 and 12 are consequential upon the drafting change made by amendment 1.
Amendment 8, in clause5,page7,line21,after “allow” insert “or require”

This amendment makes it clear that the regulations can require the Bank of England to share information it receives from credit reference agencies with persons specified in the regulations (such as the Treasury).
Amendment 9, in clause5,page7,line22,leave out
“prescribed persons or for prescribed purposes”
and insert
“persons or for purposes specified or described in the regulations”

This is a minor drafting amendment which clarifies that the extent of the Bank of England’s ability to share information received pursuant to regulations made under clause 4 may be specified or described in those regulations.
Amendment 10, in clause5,page7,line25,leave out “Credit information regulations” and insert “Regulations under section 4”

See explanatory statement to amendment 7.
Amendment 11, in clause5,page7,line29,leave out “Credit information regulations” and insert “Regulations under section 4”—(Matthew Hancock.)

See explanatory statement to amendment 7.

Amendment proposed: 41, in clause5,page7,leave out lines 39 to 41 and insert—
‘(8A) Credit information regulations shall provide a small or medium-sized business with the right to complain to the Financial Ombudsman seeking a determination requiring a designated credit reference agency to rectify, block, erase or destroy data held about the complainant.
(9A) Section 226A of the Financial Services and Markets Act 2000 is amended as follows. After subsection (f) insert—
“(g) the complaint is one falling under section 5(8A) of the Small Business, Enterprise and Employment Act 2014.””.—(Ian Murray.)

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 11.

Question accordingly negatived.

Amendments made: 12, in clause5,page7,line39,leave out “Credit information regulations” and insert “Regulations under section 4”

See explanatory statement to amendment 7.
Amendment 13, in clause5,page7,line41,at end insert—
‘( ) Regulations under section (Small and medium sized businesses: information to finance platforms) may impose a duty on designated finance platforms to provide statistical information to the Treasury.”

This amendment enables regulations made under the new clause inserted by amendment NC1 to require platforms designated under those regulations to provide the Treasury with statistical information to do with the information shared under the regulations.
Amendment 14, in clause5,page7,line42,leave out
“credit information regulations that are made”
and insert
“regulations made under section4 and the first regulations made under section (Small and medium sized businesses: information to finance platforms)”

This amendment means that the first regulations made under the new clause inserted by amendment NC1 would, like the first regulations made under clause 4, be subject to the affirmative procedure.
Amendment 15, in clause5,page7,line44,leave out “credit information regulations” and insert
“regulations made under section 4 or (Small and medium sized businesses: information to finance platforms)”

This amendment means that any subsequent regulations made under the new clause inserted by amendment NC1 would, like subsequent regulations made under clause 4, be subject to the negative procedure.
Amendment 16, in clause5,page7,line46,leave out subsection (11)

This is a minor drafting amendment which omits definitions which are no longer needed in clause 5 either because all instances of the defined term are removed by other amendments, or because the definition is included in the new clause inserted by amendment NC2.—(Matthew Hancock.)

Question proposed, That the clause, as amended, stand part of the Bill.

Iain Wright: I have a brief question on clause 5(3)(a). It would allow for
“provisions about investigations, including powers of entry and search and criminal offences”
in respect of the Financial Conduct Authority. Will the Minister explain why that is applicable to clause 4, agreed a moment ago? This seems very draconian, in relation to the passing of information and compliance with the Financial Conduct Authority. I hope the Minister can explain.

Matthew Hancock: The whole of clause 5 supplements the power in clause 4 and would enable the Treasury to make regulations to allow the FCA to enforce the obligations on banks and credit reference agencies outlined in clause 4. It would also create regulations to protect small and medium-sized enterprises whose data would be shared under those obligations. Those are part of the standard powers of the FCA.
We want to ensure that the FCA’s power to enforce against this is as strong and robust as normal. We take that into account when dealing with the FCA’s ability to fulfil its obligations in other areas, so we think it is appropriate, because we would not want enforcement of this matter to be any looser than enforcement of other matters.

Toby Perkins: I will turn what was meant to be an intervention into a short contribution. I invite the Minister to explain a bit more about the kinds of obligations that are likely to be imposed on the Financial Conduct Authority, the scheme operator and, in particular, the ombudsman, which is listed under subsection (4)(b)(iii).

Matthew Hancock: Extending the remit of the ombudsman so that any micro-business that has a dispute with a designated CRA can seek a decision represents a strengthening of the protections for those businesses. It is a welcome move that will ensure that the clause is enforced properly. The clause also gives the Treasury the power to impose an obligation on a designated CRA to provide data on request to the Bank of England for data collection purposes. The power will ensure that the authorities have the appropriate tools at their disposal to execute clause 4 properly. The ombudsman service will ensure that micro-businesses have a method of appeal in those circumstances. I hope that answers the hon. Gentleman’s question.

Question put and agreed to.

Clause 5, as amended, accordingly ordered to stand part of the Bill.

Clause 6  - Disclosure of VAT regisration information

Ian Murray: I beg to move amendment 49, in clause6,page8,line16,after “information”, insert
“specifically financial information that would include entire tax records”.

This amendment strengthens the safeguard in subsection (2) restricting the information that can be disclosed.

Graham Brady: With this it will be convenient to discuss amendment 48, in clause6,page8,line17,at end insert—
‘(2A) The Secretary of State may by order specify the information that Commissioners are permitted to disclose.”.

This amendment strengthens the safeguard in subsection (2) restricting the information that can be disclosed.

Hon. Members: Hear, hear.

Ian Murray: I thank my colleagues for their enthusiasm.
Again, we welcome any information that can be used to help small and medium-sized enterprises to access funding. We know what is in a positive upwards trajectory: not net lending to small businesses, but the rate of VAT, which has gone up from 17.5% to 20%, despite promises to the contrary and our being warned by the Liberal Democrats that we were heading for a Tory tax bombshell. I do not want to stray too far from the Bill, but it is important to reflect on the fact that VAT has increased in this Parliament, despite promises to the contrary.
Clause 6 was broadly welcomed by everybody who gave evidence last week. The Federation of Small Businesses broadly supports the sharing of data—particularly VAT data—where it helps to increase the availability of credit to SMEs. However, it said in one of the questions it circulated to the Committee on the disclosure of VAT registration information that it is concerned about how the data will be made secure and not vulnerable to mishandling.
We take the issue of data sharing very seriously, and the Data Protection Act will cover what we are trying to achieve in the Bill. Almost 70% of the FSB’s members are VAT registered, and it is to be hoped that the number of VAT-registered companies will increase as the economy grows and companies’ profits and turnover increase. The purpose of these two amendments is to address the FSB’s concerns about data, which it stated clearly to the Committee. Subsection (2) states:
“subsection (1) does not authorise the Commissioners to disclose any information which is, in the Commissioners’ view, financial information relating to any business carried on by V”.
V is the person undertaking VAT registration. The clause states that financial information that, in the commissioners’ view, relates to the business should not be used, but I believe that it should go further and restrict disclosure to financial information that does not include entire tax records. That is critical. Otherwise, the commissioners might decide to hand over entire tax records going back months, years or even decades to someone who wants to assess the creditworthiness of a small business. We do not think that would be helpful, and it would be good if the Bill stated explicitly that VAT registration information provided to determine creditworthiness must be specifically related to the information required, and must not consist of entire tax records.
We support clause 6, as do the Institute of Directors, the FSB and the CBI. VAT information is a key component in helping providers of finance to assess the risks and benefits to their business. Her Majesty’s Revenue and Customs is, quite rightly, draconian in the collection of such information. We are talking about taxpayers’ money; VAT is money that goes into the public purse, and businesses should be paying it fairly. For that reason, it can be difficult for small businesses to ask HMRC for flexibility over payment or the way in which they deal with their VAT affairs. That must all be taken into account, which is why looking at VAT information can be beneficial for finance providers.
The British Chambers of Commerce stated in its evidence:
“This will help companies reduce fraud and comply with anti-money laundering obligations by improving the identification of legitimate businesses.”
We welcome that aim behind clause 6, and we welcome the anticipated increase in trade that it may create. However, as HMRC has acknowledged, there is considerable uncertainty about the estimated uptake. Amendment 49 is designed to restrict the type of financial information that can be provided by excluding entire tax records. Amendment 48 is designed to allow the Secretary of State to restrict, by order, the type of information that can be disclosed. Clause 6 gives that power solely to the commissioners. Again, we completely agree with clause 6, and we think that it will provide another layer of opportunity for small businesses, but we are concerned about the problems that it may cause.

Matthew Hancock: I am grateful for the Opposition’s broad support for clause 6, which will have a positive impact on the transparency of data and help businesses to access credit. I strongly sympathise with the concerns about safeguarding taxpayers’ privacy. In amendment 49, the Opposition seek an order-making power for the Secretary of State to specify the type of information that HMRC can disclose. I sympathise with the intention, but I fear that, as drafted, the amendment would widen rather than narrow the scope of the measure.
We consulted and ran a pilot on the specific data fields that will be released, and we are very clear about the types of information that will be released. I reassure the hon. Gentleman that any data released will have to be stored securely. During the pilot, strict controls were imposed on the transfer, handling, storage, use and destruction of the data to ensure the application of relevant legislation, including legislation on data protection. There was a requirement for the holders of the data to meet industry-recognised and externally verified security standards. We have run a pilot and consulted on the structure of the policy.
The drafting of the amendment would have the opposite impact of widening the scope, which I do not think is the intention behind it. The requirements for full implementation will be equally stringent as in the pilot, so I hope I can assure hon. Members that safeguards are in place. We are extremely careful about data protection. The safeguards are robust and I hope that the amendment will be withdrawn.

Ian Murray: I thank the Minister for responding to the two amendments. We understand the FSB’s genuine concern about sensitive data because VAT records also contain a significant amount of personal data—for example, partnerships or limited liability partnerships are run and operated by the members and in a limited company there is no anonymity or partial anonymity. There is grave concern there. However, given what the Minister has said about the Bill’s provisions and the Government’s intentions, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Matthew Hancock: Clause 6 provides a power for HMRC to release non-financial VAT registration data to qualifying parties. That will enable the assessment of creditworthiness, fraud risk and compliance with regulation related to financial matters. It has strict restrictions on further disclosure when HMRC has explicitly consented to that disclosure, and limits the use of the data to the purposes that I have set out. The purpose of the Bill is to ensure that the significant amount of data that HMRC has always had can be used to achieve important objectives of supporting new lending to businesses. The reason why that matters and the link between that data and business lending is that the ability to share non-financial VAT registration data will provide substantial benefits. For example, research from HMRC in liaison with credit reference agencies has demonstrated the potential to release up to £1.8 billion in additional trade credit for businesses. We hope that the take-up will be between just over £500 million and £1.4 billion, the main beneficiaries being smaller businesses. Such data gives lenders more confidence in their credit assessment of those businesses.
It is important that that is done in a careful and cautious way. There are no plans to sell the HMRC data and none of the proposals in the Bill or previous consultation have suggested that. No financial data will be shared and that is explicitly ruled out in the Bill. The data that can be used will be only that used to identify a business—for example, a VAT registration number or business name. Any organisation wishing to receive data from HMRC will have to meet rigorous conditions, including in relation to security.

Ian Murray: I am delighted that the Minister has allowed me to intervene. He seems to be restricting the data that may be shared to the VAT registration number and the name of the company. Will he give an example of company A seeking finance and the sort of information that would be useful in relation to creditworthiness? What sort of information would HMRC hold relating to VAT that it could transfer across? It seems that the provision as drafted leaves that to the discretion of the commissioners’ view of the data to be transferred.

Matthew Hancock: No financial data will shared, but other data, not including financial data, can help a potential credit provider to assess the creditworthiness of the business. The VAT registration number and the name are straightforward examples. I do not want to fetter the judgment or to prejudge, but a potential example might be how long a business has been around for and in the VAT system. Other non-financial data are available.
An argument was put that financial data would also be helpful, but we think that the balance is appropriate to exclude non-financial data. One small example is that it would allow a credit organisation to find out if a business had no footprint at all or, similarly, how long a business had been trading for. I hope that answers the hon. Gentleman’s question. The standards of security are well recognised and independently verified, so I hope that the clause provides the opportunity of a boost to small business, while maintaining an individual taxpayer’s privacy and confidentiality.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7  - Offences for the purposes of section 6

Question proposed, That the clause stand part of the Bill.

Matthew Hancock: I shall be brief. The clause makes it an offence to disclose information under clause 6 to another party without the consent of HMRC. We think that an offence is appropriate in order to supplement the security measures on the data that we have discussed as part of clause 6. The penalties are up to two years’ imprisonment, a fine or both. They are identical to those that apply were an individual to disclose unlawfully HMRC information, as set out in the Commissioners for Revenue and Customs Act 2005.

Ian Murray: I have a genuine question. In discussion of amendments to beef up the protection of data under clauses 4 and 5, it was covered by the Data Protection Act. Why is it different in this instance of financial data that might still belong to an individual or a company?

Matthew Hancock: We brought the clauses into line with HMRC’s standards, which include two years of imprisonment or a fine as standard, because it is appropriate to align VAT data with HMRC standards. I hope that answers the question and that, with that assurance and given that clause 6 received the unanimous and wholehearted backing of the Committee, clause 7 may also stand part of the Bill.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8  - Disclosure of exporter information

Question proposed, That the clause stand part of the Bill.

Matthew Hancock: The clause establishes a power to enable HMRC to disclose information about exports. The approach is similar to that in clauses 6 and 7 in helping to promote exporters by allowing more data transference. The clause gives HMRC the power to make regulations that permit the disclosure of limited information about exporters and the products that they export. It specifies the kind of information about exporters that HMRC may prescribe to be disclosed.
HMRC collects and holds a wealth of immensely valuable information about exports. Sharing some of that might be helpful. For example, sharing information on UK exporters’ names and addresses and details of their products would provide a comprehensive and reliable source of up-to-date information that would enable potential overseas customers to identify UK suppliers of products that they are looking to buy. HMRC, however, has a statutory duty of confidentiality that prevents its officials from disclosing any information except in prescribed circumstances, which continues to be highlighted as a constraining factor in the delivery of better services and support to exporters.
It is absolutely necessary to maintain confidence in the core principle of taxpayer confidentiality, as we have discussed, but existing legislation arguably goes further than is necessary in the case of UK exporters by extending strong protection to less sensitive information, such as business names and addresses and details of products—information that is often publicly available. That limits the ability of the Government and others to support exporters by pointing to those who could be open to business. The provision is a step forward in supporting exports; it will particularly help to improve the visibility of small exporters, who often find it difficult to gain the capacity to make themselves known on the global stage.
We are putting in place a legal basis for sharing prescribed export information in a structured way. That information is limited to names and addresses, the commodity codes, descriptions of the goods exported, and the years and months of export. That will hopefully provide a springboard for the development of new, innovative ways of supporting and promoting UK exporters and their products.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Clause 9  - Power of the Secretary of State under section 1 of the EIGA 1991

Ian Murray: I beg to move amendment 51, in clause9,page10,line21,at end insert—
“(3A) Prior to the commencement of section (1) of the Export and Investment Guarantees Act 1991, as amended, the Secretary of State shall—
(a) commission an independent assessment of the functions and powers of UK Export Finance (UKEF);
(b) make a report to Parliament of steps to be taken in response to the findings of the assessment referred to in paragraph (a);
(c) commission an assessment to determine actions to improve the awareness of UKEF to small and medium-sized enterprises.”.

This amendment aims to require the Secretary of State to assess the powers and functions of the UKEF and require the Government to reform and relaunch the organisation.
You will notice, Mr Brady, that the enthusiasm of Opposition Members has diminished somewhat since 2 o’clock. [Hon. Members: “Hear, hear.”] Through amendment 51, we seek to examine the issue around the definition in the Export and Investment Guarantees Act 1991.
There is no doubt that the Government’s target of £1 trillion of exporting by 2020 seems a pipe dream, given the state of trade at the moment. We have talked a lot this afternoon about things being almost flat, but trade is not flat at all; exports are falling. The latest trade statistics from the UK Statistics Authority show clearly that overseas trade—that is everything that is non-EU—is falling quite considerably, and has done for a long time, while imports are broadly stable, or almost flat, in the words of the Minister. That means that the trade gap is getting wider and wider.
Non-EU exports for August 2014 were just short of £11 billion. That is a decrease of £2.2 billion or nearly 17% since July, and a decrease of £4.6 billion or nearly 30% since August 2013. It is the lowest export value since the general election in May 2010. There is a real problem with regard to the UK exporting to non-EU countries. It means that the economy is not diversifying in the way that the Government, or any of us, would wish, but this is the Government’s plan. Growth in the United Kingdom is not feeding down to the ordinary person in the street; it is very unbalanced, and there is an artificially created housing bubble. All of that is underpinned by the fact that while unemployment falls, the tax take for Her Majesty’s Revenue and Customs is flat. That perhaps tells us a significant amount about the kind of employment being created.
I mention those top-level issues merely to highlight how important exports are, and how, in terms of export figures, the Government are fundamentally failing even to attempt to hit the target of £1 trillion by 2020. As for the chances of them getting there, the almost flat figures show that even year on year, with a growing economy in the last 12 months, there has been a drop almost of 30% in non-EU exporting. The EU exporting figures, too, are falling from where they were in previous months. EU exports for August 2014, which is the last month for which we have data available, were at £10.7 billion—a decrease of £1.7 billion, or 13%, compared with last month, and a decrease of £1 billion compared with August 2013. Again, I emphasise—these are official Government statistics—that these are the lowest levels of exports since August 2010. That highlights the fact that the UK is back to the May 2010 level of exporting for non-EU exports, and in terms of EU exports, we are back to the August 2010 level, which shows that there is a significant problem.
In relation to issues discussed in this place recently, it would appear that EU and non-EU exports are almost identical in terms of their value to the United Kingdom economy at nearly £11 billion. That should make every Government Member shudder to think about the EU debate, because we export just about the same amount to our EU partners and neighbours as we do to the rest of the world. Those figures should be a lesson for the European Union debate—I know, Mr Brady, that you would hate us to go down the route of discussing our membership of the European Union in this Committee, but I thought it was worth reflecting on where we are on that issue.
On diversifying the economy, the trade figures that have come through HMRC show that the regions, too, are not picking up in terms of exporting. The value of UK exports decreased in quarter 2 of 2014 compared with quarter 2 of 2013, and the value of exports fell for England, Wales, Northern Ireland and Scotland, so, for all four regions of the United Kingdom—I am glad I am still able to say that, but before my Twitter account starts going mad with the famed cybernats, perhaps I should say that it fell for all four countries of the United Kingdom. All four countries of the United Kingdom experienced a fall in exports between quarter 2 of 2013 and quarter 2 of 2014. That is really significant. Only the value of exports to China increased for England, whereas Wales’s exports to the United Arab Emirates increased the most. For Scotland, exports to Sweden increased the most, whereas Northern Ireland’s exports to the Irish Republic, of course, increased the most. For imports, the largest increases were goods from Germany, Norway, China and the Irish Republic.
Therefore, the trade gap is widening. We are seeing a problem with exports and the total value of exports, and with the total number of companies that are able to export. That is why, if we are looking at a small business Bill, we need to reflect the fact that exports are hugely important to small businesses.

Toby Perkins: Has my hon. Friend heard from small businesses when he goes around the country, as I know he does, that they are very concerned that the message coming from this place, and from one of the Government parties, is very much that Britain is not an internationalist country any more, that it is looking to isolate itself, and that that is having an impact on how we are viewed overseas and, consequently, on our export sales?

Graham Brady: I think that is possibly a little wide of the amendment.

Ian Murray: That was probably a little wide of the mark, Mr Brady, and I apologise to the Committee, because I probably led my hon. Friend down that particular rabbit hole. However, it is on the record and I think that my hon. Friend is absolutely right. The rest of the world views us as being completely and utterly isolated in Europe and that is probably affecting our exporting potential. If we look at the fact that the UK had growth in its economy over the last 12 months, but our exports are falling, that may say something about the kind of growth this country has and why the Bill presents a real opportunity to correct some of those problems.

Iain Wright: Would my hon. Friend comment on the fact that in the past six to nine months sterling’s value has appreciated as well, making it even more difficult to export, and the challenge of an export-led recovery will be made ever more difficult as a result of the currency’s value?

Ian Murray: Indeed, one of the major drivers of any exporting strategy is the strength of the home currency, and a strong currency makes exporting significantly more difficult. While the Minister may see a strong currency as a positive in terms of importing, the gap is continuing to widen, so there is a real problem with exporting in this country. That is why we have called in this part of the Bill—it is the only place in the Bill where we are able to do so—for the Government to take a strategic look at everything that they are doing in terms of exporting, because the measures in the Bill are not far-reaching enough.
Although we have not tabled specific amendments to that effect, because we hope that such a strategy will be included in any overall independent assessment of the functions of UKEF, various organisations have contacted us about whether we should examine not only the value and volume of exporting, but the ethical issues. The Campaign Against Arms Trade, Friends of the Earth and various other organisations have asked us to look at whether there should be a prohibited list of exporting, and to examine the ethical and environmental factors of exporting.
Consequently, I hope that the wide-ranging review that we are seeking would examine some of those big issues around exporting, encourage exporting, mean that small businesses knew what exporting could do for their businesses and how to access exporting and export finance, but at the same time consider some of those other issues. So there is a strong case for examining the overall role of UKEF.
The British Chambers of Commerce said something similar:
“The BCC welcomes the broadening of UKEF’s powers…However, there is a strong need to ensure that these new support mechanisms are better marketed and more accessible to SMES.”
That is why we have put new paragraph (3A)(c) in the amendment to try to make SMEs not only interested in exporting but more knowledgeable about the process of exporting. We have talked about the headline figures already, and the Minister should be straining any muscles he has left that have not been already strained by other parts of the Bill to try to find a way to increase UK exporting in relation to its peers in the globalised marketplace.
Of course, we also have to examine matters clearly not only because of marketing UKEF to small businesses, but because of the question of who can access UKEF. Everyone always says that the proof of the pudding is in the eating, and we have received figures for the Government’s two flagship export schemes through parliamentary questions. Perhaps the Minister has anticipated my raising this point, as he points to a sheet of paper that perhaps has better figures than there were before. However, I will just use the figures that I received from my hon. Friend the Member for Streatham (Mr Umunna), the shadow Business Secretary, in response to parliamentary questions that he put before the summer recess.
The two flagship export schemes that the Government are promoting—the £5 billion export refinancing facility scheme and the £1.5 billion direct lending scheme—were not lending. Very few companies were coming forward and of those companies, very few were lent to. I hope that the Minister can give us some updated figures that will perhaps paint a slightly better picture, because these two schemes—particularly the larger one—were announced in the autumn statement of 2012, which is more than two years ago, and there has not been much take-up of them. I suspect that is partly because of the marketing to businesses, to let them know the schemes are available, which is what we are trying to address in the amendment.
The number of small and medium-sized enterprises with customers in China has fallen. China is a key marketplace for the UK. Everyone talks about China; I think that the Prime Minister has been there four times since 2010, and perhaps even more often. I know that the Business Secretary has also been to China on several occasions. Selling to India has dropped by 6%, and by 14% in comparison with quarter 1 of 2013. The percentage of SMEs planning to expand into emerging markets has fallen from 36% in quarter 4 of 2013 to 28%. So there is a real problem, not just with the way that the schemes operate but the way that they are marketed.
I see exporting finance, and indeed the entirety of the Government machinery in terms of exporting, as being too complex, and I do not think anybody would be able to navigate that. Businesses, especially small businesses, need the freedom not to spend too much time trying to navigate a hugely complicated system, and perhaps they would benefit from a one-stop shop for exporting. That is exactly what we need to do. Those figures are pretty dire, so I believe the Government need to accept amendment 51.
The amendment requires the Secretary of State to commission an independent assessment of UKEF’s functions, and an assessment to determine actions to improve the awareness of the body, and then present the report to the House for a response.
We have tabled amendment 51 because we think this is too crucial to the UK economy not to get right. We are happy to work with the Government in the spirit of working together to ensure that we get it right because it would help our small businesses. It would help to create higher-paid jobs than are being created at the moment and it would assist in the future.
The Opposition have launched a commission on trade, to see how we can ensure that all the machinery of government works best for British exporters, and that commission will look at some of that work with the aim of trying to promote some of the things that we do incredibly well—the key sectors that we should be promoting. One of those key sectors, of course, is the European Union itself. We have launched that exporting commission to look at that, and essentially the purpose of the amendment is to say to the Government, “Launch your own review and assessment into UKEF and exporting in the wider sense, to look at some of these big issues.”
My hon. Friend the Member for Chesterfield was heavily involved in the small business taskforce, which has made a number of recommendations to the Opposition, which we are examining. They include creating export hubs in major world cities to give UK firms a foothold; appointing export rainmakers who can help small businesses identify and approach potential customers; and providing a suite of export finance products comparable to those offered by the United States Small Business Administration scheme. As an Opposition way of looking at this, we have done a tremendous amount of work, and great credit to my hon. Friend for leading that small business taskforce, because we brought a laserlike focus to bear on ensuring that exporting works for small business. It would have been easy just to set up a taskforce on exporting, but it was a wider taskforce on all the issues that relate to small business. I hope the Minister will reflect on that. We can send his office a copy of that report if he wishes to have a read through it—but it seems to me that he is not too keen on that idea.
Those were our reasons for tabling amendment 51. I hope that the Minister, in the spirit of the comradeliness that we have had in the Committee, will at last not just agree with our amendment, but actually allow it to go forward.

Matthew Hancock: At some points during that introduction to the amendment I thought that the amendment was not only being introduced but being executed through the review of exporting that was described. Then we heard that there is indeed already a Labour party review of exporting, which is what the amendment calls for. I think that demonstrates that the amendment is not required. However, it is worth dwelling for a moment on the importance of the work of UKEF. The latest UKTI performance figures will be announced in the next seven days, and therefore, in a sense, performance is already reviewed annually. That is another reason why the amendment is not necessary.
We introduced, after about 20 years, UKEF support for goods sold on shorter terms of credit. UKEF had been almost in abeyance before 2010; we have now re-expanded it. Before 2010, each year the number of businesses receiving direct support was 18. It is now 130. In the first half of the current financial year, 101 have benefited from that support, and over 70% of those are smaller businesses. The smallest support was worth £4,000, which may seem small but could be a huge amount to a small business. There have been 38 schemes in the direct lending scheme, including one for £34 million, which was recently concluded and allowed Carillion to secure a significant contract with the Dubai World Trade Centre.
This area is moving forward. It is part of the Government’s work to support exports. Of course, when our major competitors are struggling, exports are difficult. Nevertheless, we give them as much support as we possibly can by turning round UKTI and making it more business focused, expanding UKEF, on which the clause goes further, and ensuring that that is accessible to not only larger, but smaller businesses.

Iain Wright: Could the Minister tell the Committee how many firms have benefited from the Government’s direct lending scheme for exports?

Matthew Hancock: Yes. That was the 38 to which I referred. With those answers, I hope that Opposition Members feel able to withdraw the amendment.

Ian Murray: I appreciate that the Minister has given us some figures, but he must—he did not say in his response that he was—be concerned about the current export figures for this country. If we look at the graphs it is quite clear that they are going down. To be down 30%—[ Interruption. ] The Minister might think 30% down is almost flat. We have not quite been able to get to the bottom of what he meant by “almost flat”. We have a situation where year on year, from August to August, we are down 30% on one measure and down 20% on the other. That is a damning indictment of the Government’s ability to provide more exports. He may blame other countries’ economic circumstances and, indeed, that might be the case, but some of our peers across the EU and other countries to which we want to export are doing rather well. The Chinese economy has continued to grow at a fast pace, as have the other BRIC economies and we should therefore examine all those opportunities.

Andrew Griffiths: I just wanted to remind the hon. Gentleman that, although he said that China continues to grow, the slowdown in China is at its worst for five years. We see a slowdown in Brazil, the BRIC countries, the US, Europe—the economies in all those countries are slowing down. Does he not accept that that is going to lead to a slowdown in exports?

Ian Murray: Well, I said “continue to grow”; I did not say that they are continuing to grow at the same pace. The hon. Gentleman has not taken it into account that we are back to the levels of May 2010 on one measure and August 2010 on the EU measure. The economies I mentioned have perhaps slowed down recently, but we have seen a significant drop-off, back to the general election levels in 2010 on one measure, and August 2010 on the other. I accept what the hon. Gentleman said, but rather than be complacent we should do everything we possibly can to help exporting and that is what the amendment would do.

Toby Perkins: I also accept the comments made by the hon. Member for Burton, but listening to him, it was almost as though problems that exist in the world are relevant to our own economy. However, everything that we have heard from the Minister suggests that the global economic crisis in 2008 was entirely the fault of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It really shows the foolishness of the Minster, does it not?

Ian Murray: The former Prime Minster, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath, should, of course, take full responsibility for the downturn in Japan, America, China and so on. My hon. Friend is right that there is an inherent contradiction in defending a Government figure on exporting by blaming it on the worldwide economy and then laying the blame for that on the previous Labour Government. That shows the scrabbling around and scraping of the barrel for the justification for some of those figures.
 Oliver Colvile (Plymouth, Sutton and Devonport) (Con) rose—

Ian Murray: I seem to have woken them up this afternoon. If the hon. Gentleman is as helpful as he was to my hon. Friend earlier, I will allow him to intervene.

Oliver Colvile: Does the hon. Gentleman also recognise that in 2001 the then Labour Government created a structural budget deficit? It is in the Red Book. He might like to read that because it is incredibly important that none of us forgets that it was actually created some years beforehand.

Ian Murray: Mr Brady, we are going down a route that I am sure you did not anticipate.

Iain Wright: You started it.

Ian Murray: Perhaps I did start it by having the audacity to try to amend a Bill to ask the Government to put in a report, but although we are reminding each other about history, we should not rewrite it.
I say to the hon. Member for Plymouth, Sutton and Devonport that his own Chancellor, the current incumbent of No. 11 Downing street, was not just a proponent of sticking to our spending plans during the last few years of the Labour Government, but called for less regulation of the financial sector that cost us in the first place. Let us not allow this Committee to rewrite history. Let us ensure that what is on the record is factually correct. If the hon. Gentleman does not believe me, he can Google “George Osborne and Labour spending plans” and it will come up right at the top of the search results. I am sure that he will do that on his iPad while I take an intervention from my hon. Friend the Member for Chesterfield.

Toby Perkins: While we are trying to get the facts straight about the decision to match the Labour spending plans of the time, can my hon. Friend tell me who was adviser to the current Chancellor then, and who provided that advice?

Graham Brady: Mr Murray, I hope that you will do it in the context of a report on trade.

Ian Murray: I will, Mr Brady. Perhaps when the Government are producing their report on trade, they will remind everyone in the country and on the Committee that the adviser to the Chancellor, the current incumbent of No. 11 Downing street, at the time when they were suggesting sticking to Labour’s spending plans was the Minister, the right hon. Member for West Suffolk. Let us leave history aside, but let us ensure that we get the right history in this place, while providing the context for promoting this amendment.

Andrew Griffiths: Will the hon. Gentleman give way?

Ian Murray: I will on the basis that the intervention is related to my amendment.

Andrew Griffiths: It is indeed. Specifically on exports, as we have heard, there is a global slowdown and some countries are going back into recession. Given that context, does the hon. Gentleman not find it remarkable that we have the fastest-growing economy in the western world and that, within that context, the Government have created 1.6 million new jobs?

Ian Murray: Well, the C in the hon. Gentleman’s party is now no longer for “Conservative”; I think that it should stand for “complacency”. The situation, as we saw in the HMRC report last Monday, is that a lot of employment in this country is low paid or on zero-hours contracts, which we will discuss in part 11. The proof is that, although unemployment in this country has been falling quite markedly, which is great for getting people back into work, the tax take is flat, when it was projected to be £12 billion more. That tells us what kind of employment we are creating in this country. If the hon. Gentleman does not believe me, he has his phone and his iPad, and he can look up the HMRC figures released last Monday.
To return to the amendment, now that we have sorted out history and not allowed the Government to rewrite it, I am disappointed that the Minister does not think that a review is acceptable. We have conducted our own review, done a small business taskforce and launched a commission led by Graham Cole of AgustaWestland to examine how we deal with exports, particularly in relation to small businesses. The Opposition are doing that to ensure that we can diversify the economy and increase exports. I find it strange that the Government would not want at least to consider it, given that small businesses and FSB members who have come to talk to us at our surgeries and lobby us about the Bill are telling us that export finance and the exporting system are too complex.

Matthew Hancock: I am delighted that the hon. Gentleman has now returned from his ramble to the clause. Does he not welcome the clause and the work that it will do to expand export finance, as well as the action that has been taken to boost exports—such as the 38 potential deals in the direct lending facility that we discussed earlier—notwithstanding the challenges in the economy around the world?

Ian Murray: There is no political divide about trying to boost exports. We all agree that we should boost exports. As I said at the start of my contribution, I welcome the provisions in the Bill to assist with that. However, surely that emphasises that we should assess any good practice in exporting, and see whether we can expand it into other areas and get the message to small and medium-sized businesses. That is what the measure is about—it is a small business Bill. A review before it comes into force would be useful and allow us to examine the types of exporting we have, the kinds of industry that we are good at and the sort of areas in which we should export. It would also allow the Government to take stock of the plethora of support we have for small businesses, include that in a report and present it to Parliament.
That is a perfectly reasonable suggestion, but it seems that the Government are perfectly happy with our plummeting exporting figures—also known as almost flat. That is unacceptable when we are trying to diversify the economy and create high value jobs in this country. I am therefore disappointed that the Minister has decided not to accept the amendment and I would like to test the view of the Committee.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 10.

Question accordingly negatived.

Clause 9 ordered to stand part of the Bill.

Clause 10  - EIGA 1991: further amendments

Question proposed, That the clause stand part of the Bill.

Matthew Hancock: The clause makes further changes to the Export and Investment Guarantees Act 1991 and, with one exception, they relate to the financial limits on the liabilities that the Secretary of State may incur through UKEF. The provision supports clause 9.
The changes consolidate into a single limit the current separate limits for sterling and foreign currency for the purposes of making arrangements for supporting UK exports and investments and overseas enterprises, and for managing UKEF’s portfolio of rights and liabilities. We are therefore amalgamating the sterling and foreign currency limits and expressing them in special drawing rights, which is the IMF currency.
The current limits are £35 billion for transactions in denominated sterling and SDR and £30 billion for those denominated in foreign currency. They will be merged to create a single limit of 67.7 billion SDRs. The majority of business supported by UKEF is denominated in foreign currency and the consolidation will allow us to access the largely unutilised amounts in sterling limits.
The clause also removes the requirement for the Secretary of State to consult the Export Guarantees Advisory Council when determining whether to make arrangements for reinsuring parties providing credit insurance for UK exports. UKEF’s short-term business was privatised in 1991, and business credit insurance from exports sold in short terms of credit. The Government continued to provide support for capital goods and services, usually sold on medium to long-term credit. At the time of privatisation, there was a concern in Parliament to ensure that there was no loss of support to export as a consequence of that, hence the duty. However, in practice, there has been no need to consider the provision of reinsurance to the private export credit insurance market for more than a decade, and the requirement to consult EGAC is therefore redundant.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11  - Electronic paying in of cheques etc

Matthew Hancock: I beg to move amendment 17, in clause11,page11,line30,after “delivered” insert
“on or in connection with presentment or payment (including after presentment or payment or in connection with dishonour for non-payment)”

This amendment clarifies that the provision disapplying requirements to exhibit, present or deliver an original physical instrument which is presented electronically has effect in respect of such requirements arising at any time, including any requirement to deliver an instrument after it is paid.

Graham Brady: With this it will be convenient to discuss Government amendments 18 and 19.

Matthew Hancock: Clause 11 is about cheque clearing and allowing the images of cheques and other similar paper instruments to be used, rather than the paper instruments themselves. It is an extremely exciting clause, and Government amendments 17, 18 and 19 are minor technical amendments to confirm the Government’s intention, following the publication of the Bill, and to ensure that the Bill is not open to misinterpretation.
First, amendment 17 clarifies that when cheques are paid in electronically, any existing requirements to present or deliver the original piece of paper are disapplied whenever such requirements arise. That was the original policy intention, and we wanted to ensure that it was clear in the Bill and so ensure that we deliver the benefits of cheque imaging to the banking industry, which we estimate will be £94 million.
Amendment 18 clarifies the term “holder”, as used in the provisions of the Bill. It refers to holders of all types of paper instruments in scope for electronic presentation. There is a risk that on the existing drafting, the scope could be seen only to include bills of exchange and promissory notes. The amendment clarifies that “holder” is used in relation to all types of paper instrument.
Amendment 19 clarifies that the provisions for electronic presentation apply to any paper instruments presented after the provisions are commenced. That includes the presentation of any instrument created before the date of commencement, but paid in after commencement.
To conclude, these are technical amendments to support a widely supported and positive clause. I look forward to the Committee’s support for the amendments.

Amendment 17 agreed to.

Ian Murray: I beg to move amendment 50, in clause11,page12,line8,at end insert—
‘(6) Where an instrument is presented for payment under this section, the responsible bank will be required to ensure the validity of the electronic image as being from the person who signed the cheque and mechanisms for this will be specified in regulations under this section.”.
This amendment aims to increase assurance over the validity and security of electronic cheques.
It should not take too much prompting to get a bit of support from my colleagues. I will not take too long, because we, as the Opposition, welcome clause 11. My only disappointment is that it could signal the end of the phrase, “Your cheque is in the post.” There is no longer that excuse for late payment, which we discussed this morning, and I will not go over it again. The Royal Mail can no longer be blamed for not delivering a cheque to someone.
The latest figures show that nearly £840 billion of cheques were processed in 2012, accounting for 10% of all payments made by individuals. I was surprised that it was so high, because I thought cheques were becoming obsolete. Volumes are still high and processing costs are expensive. The Opposition agree that cheque imaging is a sensible step to improve the speed and ease of use of these forms of payment, and we support this part of the Bill.
We want to emphasise, however, that despite the marked decline in the use of cheques over the past 25 years, they still represent a large volume. We must recognise that for many, particularly small businesses, small traders, voluntary groups, charities and the elderly, the cheque is still an important means of payment. It is an important means of payment in our jobs as MPs, for example in paying suppliers to our constituency offices and so on. For example, some 10% of payments by individuals and 20% of payments by small businesses and charities are made by cheque. The charity Toynbee Hall stated:
“Financial inclusion is about meeting the needs of all the population, from those who prefer more traditional services, to people who embrace technological advancements.”
We all want the same thing: a modern, efficient cheque-clearing system that means that cheques are a sustainable payment system for years to come, delivered as rapidly as possible.
If we are to introduce a new system, there are two or three issues that our amendment seeks to address. Although it is directed specifically towards the validity of the electronic image and the person who signed it, the amendment applies equally to other issues to do with the presentation of an electronic cheque. If consumers do not have confidence, we could see the demise of the cheque and the system could become unstable. We received a response from the Cheque and Credit Clearing Company that welcomed the proposals for electronic cheques, but it stated quite clearly that it does not want to undermine the clearing system in the United Kingdom, that it would be good to get some assurance from the Minister that
“the integrity of the clearing system is paramount”
in terms of promoting electronic cheques and that it would not want the system
“put at risk for the sake of”
a little bit of “development time.” In evidence last week, the Economic Secretary to the Treasury was keen to try to shorten the time scale for implementation. She was rightly enthusiastic about electronic cheques, but we must ensure that the integrity, safety and security of and confidence in the clearing system are paramount, so I would like to hear the Minister’s response to that.
Our amendment therefore seeks assurances from the Government that the integrity of the clearing system is paramount. The Law Society of Scotland stated that there are
“no provisions under clause 11 that secure the electronic image of the cheque is actually from the person who has purportedly signed the cheque.”
The person who is submitting electronic images will tend not to be the person who has signed the cheques, but there appear to be no provisions in the Bill for ensuring that the electronic image is indeed from the person who actually signed it when the cheque is being cleared. Will banks insist on some level of assurance as to the trustworthiness of the original image? We have heard that there may be no requirement to present a physical cheque, so there are issues about whether an electronic cheque could be sent to the bank while standing outside and then the physical cheque could be presented across the counter one minute later.

Sheryll Murray: Could the hon. Gentleman clarify something for me? As the image is of a real cheque, what is the difference between presenting a cheque that has to be transported and sending an electronic image? It is like a photograph. I do not understand what he is trying to do here.

Ian Murray: That is a valid intervention, but my point is about the integrity of the clearing system. If someone goes into a bank branch in Victoria with a physical cheque, as soon as it has been handed over it is completely gone. It is into the system and there is no way for that same cheque, with the same reference number, to be presented to another bank. If an image of the cheque is sent to the bank for clearing, there will be a period of time between the cheque arriving electronically and it being struck off the list of cheque numbers and the physical cheque being presented to another branch. There will be some system that allows matching up to avoid duplication, but whether the clearing system is able to deal with that has not been considered in the Bill, which is what the Law Society of Scotland and the Cheque and Credit Clearing Company have suggested that we need to ensure happens. That is the thrust of the amendment. I appreciate that a physical photograph of a cheque is not the same as physically having a cheque to present in one’s hand.
Perhaps some of the analysis on cheques will give us some information about how the clearing system works and what people use cheques for. An analysis of cheques cleared on 30 April 2013 found that £25 was the most popular value of cheque, that 62 cheques were made out for 1p and that 25 cheques were made out for values of over £1 million. That shows the huge raft of uses that people have for cheques. It also emphasises other issues: for example, contactless payment is restricted to transactions of a certain value—I think it is still £20, although I know there is a move to try to increase it—because of the issue of integrity, as people do not have to enter their personal identification number.

Andrew Griffiths: Does the hon. Gentleman not accept that this digital system will speed up the clearing of cheques? At the moment we have a ridiculous situation in which planes are flying cheques between London and Edinburgh so that the clearing system can cope with the amount of cheques. With a digital system we will cut down dramatically the amount of time it takes to clear a cheque, thereby not only putting more money into the hands of the people to whom it belongs but improving the speed and integrity of the system.

Ian Murray: I totally agree with the hon. Gentleman—and wish him a belated happy birthday for Sunday. I agree that that is the thrust of the measure and that the Government should provide the system. But the purpose of an Opposition is to probe the Government. In this case, our amendment probes them on the integrity of the clearing system, which is hugely important to the entire UK economy, and particularly to individuals and small businesses, to make sure that people are in control of and have confidence in the clearing system and that this process will allow us to do the very things he has just highlighted, by making the system cheaper, quicker and more efficient. We all wish to achieve that.
I was highlighting the analysis of cheques that went through on 30 April 2013 in order to ask the Government whether they have considered an initial limit on cheque values in the new system to allow them to test its robustness.

Andrew Griffiths: I understand the hon. Gentleman’s concern, but a similar system is in place in America, Canada, India and Australia, and all those countries are able to run it very effectively. If we hold back and limit the system, the danger is that we will be behind the curve and miss the opportunities that this fantastic new initiative offers our businesses and economy. I urge him to embrace the change and the new technology rather than look to delay it or have it piecemeal or in smaller sizes.

Ian Murray: It is not my intention to make it piecemeal or to delay it, or indeed to do anything other than make sure that it can come in as quickly as possible. I am posing questions to the Minister to see whether he has considered the issues that the people who deal with cheque clearing, the Law Society of Scotland and many other organisations have raised with us.
The other big issue, which I started with, is whether this system will mean the demise of the actual cheque. That would be bad for the UK economy because many small businesses use cheques—as do vulnerable groups and the elderly—to participate in the economy by paying their bills and so on.

Andrew Griffiths: Again, I completely disagree with the hon. Gentleman. This system will make cheques more effective and easier to use. No longer will we have to go down to the bank to cash our cheques; we will be able to use a scanner or other machine, do it with a mobile phone or put a cheque in at the ATM. That will make cheques more user-friendly, and therefore help to continue their use long into the future.

Ian Murray: That may be the way it works, but who is to say that at some point in the future banks might not decide not to use paper cheques or to accept them at all beyond a certain point? [ Interruption. ] Well, it is an argument, is it not? There is a debate about whether we will use them at all. The amendment is intended to probe whether the clearing system is robust enough to enable people to have confidence in it, and to make certain that vulnerable parts of the community will not be prevented from using cheques. I disagree with the hon. Gentleman on the technology: not everybody has the ability or wherewithal to use that kind of technology. I am trying to make sure that, as the system becomes more efficient and presenting a cheque across the counter as normal therefore becomes more expensive in comparison, that method will not be cut out for those people who may wish to use it.

Andrew Griffiths: It currently costs £1 on average to clear a cheque. Under the digital system it will cost 25p, which will mean that cheques survive longer and encourage banks to continue their use. If we can make it cheaper for banks to clear a cheque, it will stay in place for much longer.

Ian Murray: I do not disagree with the hon. Gentleman. I have absolutely agreed that this is an efficient way of doing it, but it could be the case that banks decide to accept only the electronic presentation of cheques, because that is much cheaper to process. I do not know whether the hon. Gentleman in his birthday celebrations on Sunday got a new mobile phone, or a new iPad, a new tablet or a new piece of technology, but I bet if he did, 48 hours later he would still be struggling to cope with the new technology because he had not learnt all the features of it yet. That is okay for somebody like the hon. Gentleman, but somebody who is 92 and pays their bills by cheque might find it very difficult if cheques are no longer accepted. That is the point I am trying to make. We are actually talking about the same issue.

Oliver Colvile: I have to say that I prefer using cheques if I possibly can, because it gives me a good record of what I have spent. It is also incredibly helpful—[ Interruption. ] I probably would do that too, actually. Secondly, it is a way of making fraud less likely, and I was recently subject to a fraud on the internet. It is an issue and we have to protect the elderly and ensure that they do not end up by losing out. So I urge my right hon. Friend the Minister to make sure that we continue to have a cheque system of some description. If we can reduce the costs of that, it will be a very useful thing to do.

Ian Murray: I thank the hon. Gentleman for that intervention, because I think we are talking about the same issues. We are trying to examine the Government’s proposals to make sure that that very issue does not arise. Given how helpful the hon. Gentleman has been in Committee today, I am surprised he has not voted for any of our amendments. I pass on the sympathies of Opposition Members for the fraud that he was subjected to online. Perhaps we can hear a little about that later.
Let us stop the debate now, although it seems to have enlivened the Government Back Benches to pose questions. It seems we are all singing from the same hymn sheet, but I can guarantee that the Minister will say he loves the spirit of the amendment but will not vote for it. We will decide, following the Minister’s response, whether to test the will of the Committee.

Matthew Hancock: I am delighted to respond to the amendments and the broader issues that have been set out. I am delighted also that Government Members are fully engaged with the benefits that the clause will bring to businesses, to banks and to individuals to make finance more easily accessible. It is a shame that the shadow Minister seems to have lost his Back Bench, but it is great to see four Front Benchers here all eagerly engaged, and only one on the Back Bench.

Andy McDonald: Quality.

Matthew Hancock: On the issues at hand, 10% of payments made in 2012 were by cheque. It is one of those issues that unites Ministers of all stripes, not only in the current Government but in previous Governments: the requirement from time to time to reject a suggestion that cheques should be abolished. The suggestion seems to keep coming back every few years and it should always be rejected. The purpose of the clause, as my hon. Friend the Member for Burton—I almost said for beer—expressed so powerfully, is to help to secure cheques for the long term by making them more efficient.
Some people say that cheques are anachronistic and should be abolished. I say, not on my watch. There is no way, while I have any say over it, that cheques will be abolished. Instead we are permissively supporting the growth of more flexible payment systems, and the ability, as has been done for time immemorial, to write a cheque, take it to the bank and have it cashed. We support that with the ability to do that through modern electronic means. It is a classic Conservative notion of combining the best of the old with the best of the new, and I am therefore not surprised to hear such strong support from across the Committee—especially from Government Members—for this measure.
I will address the concerns in the spirit of the amendment. Funnily enough, I do not think the amendment is necessary but I do think that the issues it raises are worth clarifying. The most substantive element of the amendment is the technical issue of whether someone can get their money twice if they e-mail a picture of a cheque and present it at the same time. That would obviously be absurd. Financial institutions that are implementing this will be able to share real-time information about cheques that have been paid into the system, to ensure that no cheque can be paid in more than once. That is an important part of implementation. The banking industry will test the new infrastructure as part of the implementation process that the Financial Secretary to the Treasury mentioned in the evidence session last Thursday. Banks will not switch to the new system before they are confident that it is robust and safe to use. I hope that Members are reassured on that central point.

Andrew Griffiths: We heard concerns about fraud. By doing away with bounced cheques, people will instantly know whether there are cleared funds in the account of the person that the cheque belongs to. Does the Minister agree that that will improve security and prevent people from being ripped off with cheques?

Matthew Hancock: Yes. This measure will allow for enhanced fraud and security measures, as well as removing anachronisms such as flying a plane or bussing cheques around the country where they simply follow a regulatory requirement. After all, the clause amends the Bills of Exchange Act 1882. Even if Labour party ideology has not moved on much since 1882, technology has moved on quite a long way. We agree that steps need to be taken to mitigate fraud. Proposed new section 89D of the 1882 Act includes a power for the Treasury to make regulations that place a liability on the payee’s bank for losses arising out of fraud and error—specified types of fraud and error. We will publish those regulations in draft at the Lords Committee stage to ensure that the intended effect of the amendment tabled by the Opposition is taken into account. The effect of the Treasury’s regulations will be that the payee’s bank, which chooses whether and how to allow its customers to pay with cheques or electronically, will be accountable for the types of fraud and error that it is best positioned to identify and prevent.

Iain Wright: The Minister said that he is tabling amendments for the Lords Committee stage.

Matthew Hancock: No.

Iain Wright: Have I got that wrong? If not, will the Minister reassure me that this Committee and this House will be able to scrutinise the provisions that the Government are introducing?

Matthew Hancock: We will publish the regulations in draft, taking today’s debate into account. I assure Members that the substance of the amendment, as well as our debate on it, has been taken on board and will be put in place in secondary legislation. The Bill already provides the necessary powers to ensure that this liability is allocated clearly and appropriately between paying and receiving banks and that the system will therefore have the right incentives.
We have given banks two years in which to implement this, but we very much hope that they will implement it in one year. I hope that Members will support us on that. There was mention that the Bill should not be rushed. It should not, of course, be brought in before it is ready but we should try to bring it in as quickly as is reasonably practicable. Towards the end of the speech by the hon. Member for Edinburgh South, he said that he supported doing this as fast as is reasonably possible, so I welcome that cross-party support. With that, I urge him to withdraw his amendment.

Ian Murray: Given that the Minister said that some of the issues that I have raised will be dealt with in regulations, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 18, in clause11,page13,line30,at end insert—
“() in relation to an instrument which is not a bill of exchange or promissory note, references to the holder are to the payee or indorsee of the instrument who is in possession of it or, if it is payable to bearer, the person in possession of it.”.

This amendment clarifies that the term ‘holder’ in section 89D of the Bills of Exchange Act 1882 (inserted by clause 11) is used in relation to all types of instrument, and not just those types of instrument in relation to which ‘holder’ is currently defined in the 1882 Act.
Amendment 19, in clause11,page14,line19,at end insert—
“( ) The amendments made by this section have effect in relation to presentment of instruments after it comes into force, including instruments created before that time.”.—(Matthew Hancock.)

This amendment clarifies that the provisions about electronic presentment of instruments have effect in relation to any presentment or purported presentment after commencement of the provisions, including presentment or purported presentment of instruments or images which were created before commencement.

Clause 11, as amended, ordered to stand part of the Bill.

Clause 12  - Restriction on powers of the Payment Systems Regulator

Matthew Hancock: I beg to move amendment 20, in clause12,page14,line23,at end insert—
‘(1A) Section 58 (power to require disposal of interest in payment system) is amended as provided in subsections (1B) and (1C).
(1B) In subsection (1), for the words following “interest in” substitute “—
(a) the operator of a regulated payment system, or
(b) an infrastructure provider in relation to such a system,
to dispose of all or part of that interest.”
(1C) After subsection (2) insert—
“(2A) The reference in subsection (2) to a restriction or distortion of competition includes, in particular, a restriction or distortion of competition—
(a) between different operators of payment systems,
(b) between different payment services providers, or
(c) between different infrastructure providers.”.’

This amendment extends the Payment Systems Regulator’s power to require disposal of an interest relating to a regulated payment system so that the Regulator may require disposal of an interest in an infrastructure provider in relation to such a system.
The amendment makes a change to the Financial Services (Banking Reform) Act 2013 to ensure that the payment systems regulator has the right powers to act on the ownership of payment systems. That is to ensure that the ownership of payment systems by the big banks does not act as an impediment to open access and competition in the market for payment systems and payment services. The amendment provides the payment systems regulator with the power to order divestment of ownership interests in payment systems and extends that to ownership interests in infrastructure providers to payment systems.
This is a technical clause. Since the passing of the 2013 Act, it has become clear that the legislation grants the PSR a power to divest ownership, but it does have a similar power over ownership interests in payment system infrastructure providers, as opposed to those in payment system operators, which leaves out a significant part of the ownership of payment systems. The clause deals with that omission and will allow the payment systems regulator to deliver on its objectives to promote innovation and competition and to ensure that payment systems operate for the benefit of their users, including small businesses and consumers.

Amendment 20 agreed to.

Clause 12, as amended, ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.—(Mel Stride.)

Adjourned till Thursday 23 October at half-past Eleven o’clock.
Written evidence reported to the House
SB 36 Local Government Association
SB 37 Grant Thornton UK
SB 38 Equiniti David Venus
SB 39 APSC
SB 40 Wilkins Kennedy LLP
SB 41 National Federation of Roofing Contractors
SB 42 Robert May
SB 43 International Financial Centres Forum